Category Archives: Opinion / EdiTOADial

Carlton Owen

(Part 2 of 2 — click here for Part 1)

While to some in the U.S. it might seem worthwhile to keep this fight going, I argue that it’s time to try something different with regards to the long-running softwood lumber dispute. …Here’s my “simple solution.” For example, let’s… agree to assess ten percent of the exchange rate value – in this case just 3% — of the sales price of lumber exported from Canada to the U.S. and invest those funds in a Canadian controlled North American Forest Futures Fund (NAF).  Those returns could then be used… by FPInnovations (for cross-border softwood lumber research projects); by the U.S. Endowment and USDA Forest Service Forest Products Laboratory (for cross-border softwood lumber/coniferous forest research projects), and to support conservation of working private forests in Canada and the US.

Among the first projects that the U.S. Endowment for Forestry and Communities took on under my leadership was the study and groundwork for establishment of a global commodity research and promotion program (a.k.a. “commodity checkoff”) for a forest product — softwood lumber. The resulting Softwood Lumber Board has established an enviable track record of what can result from sustained collective investment in market protection and growth. It’s time to bring the continent’s longest running trade dispute to a close and shift to a sustained investment vehicle that will benefit all in the greater forest sector. This work is too important to leave to governments alone or the shrillest voices at the extremes of the sector. The future of forests and forest products are in the balance.

Carlton Owen

After 20 years the United States is calling quits to its longest shooting war – Afghanistan. The two aptly named “World Wars” lasted an average of just over five years. Yet, our longest trade dispute – that between the U.S. and Canada over softwood lumber — has being going on for nearly four decades! Fortunately, trade disputes aren’t fought with bombs and bullets; but like most wars, there are few gains, and many loses just the same. …Having worked with two major U.S. forest products producers that stood on opposite sides of the dispute… and having spent a not-insignificant time in Canada, I understand the views of both factions. Yet I see almost no lasting gains to Coalition supporters with perhaps Canadians being the greater beneficiaries.

Generally speaking… dollars exacted under the various chapters of the softwood lumber dispute have either been retained in Canada and used to support its forest sector or have been rebated to the producers. Where duties served to shore up the selling price of lumber, Canadian producers benefited just as did U.S. producers. But, if the lion’s share of duties were ultimately refunded to producers in one form or another, can someone please explain how such has extracted lasting pain or loss to the Canadian sector? At the same time, the dispute has done much to distract from market growth and at times has had some of the sectors most important customers… attacking the U.S. industry and seeking Congressional intervention. …It’s time to look for new solutions.

Kevin Mason

While North American lumber markets have spent most of the month in freefall, OSB markets have shown incredible resilience, with prices still nudging further into record-breaking territory through the month. Simply put, OSB is less exposed to softness in the repair and remodel channel, thus robust demand from residential construction has been enough to keep markets tight and producers in the driver’s seat. …However, with incremental new supply from West Fraser’s restarted Chambord, QC mill and the upcoming restart of LP’s Peace Valley, BC mill in Q3, the peak is likely approaching quickly, and we expect OSB prices to retreat in Q3 and continue trending lower through the balance of the year.

North American plywood markets have piggybacked on incredible strength in OSB over the last 12 months and are also sitting near record highs today. …While we do expect plywood prices to moderate in the second half of 2021 (along with OSB), the rate of decline could be slower than initially anticipated if the ongoing dispute over the grading of South American imports slows the flow of Brazilian panels into the U.S. …As the world moves toward a low to negative carbon future, industrial pellets are one of the many natural climate solutions available right now and at scale. …Companies in the U.S. South, with its vast (and growing) forest resources and relatively stable chip prices, are tapping this opportunity.

With the wild price run that has been in effect since about June of 2020, it is starting to become more obvious that the North American wood products supply chain is completely strained. …While a temporary shortage of lumber, OSB and plywood has occurred, it is more a function of short-term constraints [which] have impacted the supply side during this strong demand cycle, so hence the runaway commodity wood products prices. The simple math is this… If demand grows by more than about 2.5 billion bf this year and in 2022, then there will be a potential gap and that will create more ongoing price volatility. The only region in North America that has added any significant new lumber capacity in North America is the US South. 

Historically we would expect to see SPF prices more in the US$350 to $400/MBF range. In early June, at the time of writing, 2×4 SPF prices… were starting to move rapidly lower. We all know that when commodity prices go way up that they will eventually have to come down. However, I do not believe prices are going to crash and burn. I believe we are going to see a retrenchment to lower prices over the course of this year, but perhaps not below $1,000/MBF. Prices will eventually stabilize and will be selling at elevated levels over those of the 2010 decade. There is still good news ahead for sawmillers.

In late July 2020 I… posed the question if W-SPF 2×4 #2&Better lumber could achieve the US$1,000/Mbf threshold in the COVID-induced rally that had started. At that time, W-SPF was trading at US$678/Mbf – or just over two-thirds of the way from the $1,000 target. …Is a $2,000 price for SPF possible during this cycle? Prices have increased $400/Mbf in the last five weeks – if this sizzling pace (averaging $80/week) were to continue, we would be there in nine weeks, or the end of June! 

There are many demand factors that continue to favour the strong demand cycle and they still outweigh the negative factors, at least for now. …History suggests that whenever expectations get too lofty, things can change for the negative very quickly. And nothing cures high lumber prices like high lumber prices. …There are already spot market transactions of 9-foot studs at over $1,800/Mbf delivered to the US east coast and Texas. Getting to the $2,000/Mbf threshold for some products on a delivered basis is possible and, in fact, highly likely! Whether the W-SPF 2×4 R/L FOB mill price gets there is probably a stretch, but momentum suggests it will get close. …As always, the outcome will be played out in the lumber markets and no one can really predict what is going to happen in this crazy cycle until it happens!

Kevin Williamson

It is mystifying that free trade remains a policy without a constituency, when there are so many natural constituencies for it — people who live in houses for example. …Join me for a trip down memory lane back to the heady days of 2017, when, under the very best thinking brought to you by… our government decided that one of the biggest and more urgent problems facing Americans was a splendid supply of inexpensive lumber — specifically, that those wily, inscrutable, nefarious . . . Canadians were selling the stuff too cheap in U.S. markets, thereby undercutting the critical economic position of — oh, I don’t know, Paul Bunyan, I guess.

…Even with lumber prices at a record high, the Biden administration is continuing the Trump administration’s policy of imposing a punitive sales tax on American consumers to punish them for buying Canadian lumber. …It’s pure special-interest politics. …Americans do not need to be protected from low prices and abundance, from high-quality building supplies provided at reasonable rates. Low prices and abundance: That is a policy that might appeal to some people. Those who live in houses and apartments, for instance.